Rambus Indicted in Europe
August 27, 2007
The European Commission confirmed last week that it sent a Statement of Objections ("SO") to Rambus, Inc. on July 30, 2007. The SO sets out the Commission's preliminary conclusion that Rambus has illegally charged unreasonably high royalties for some patents relating to DRAM technology. Rambus has until the end of September 2007 to file a written response with the Commission, after which it may request an oral hearing. If Rambus cannot convince the Commission that its findings were incorrect, then the Commission is likely to conclude that Rambus has violated European competition law. An adverse decision against Rambus is likely to result in behavioral remedies such as a price cap on the royalties Rambus may charge for the patents at issue, and perhaps even a fine. If Rambus appeals, then the matter will move to the European Courts, a process which can take several years (as evidenced by the ongoing Microsoft case).
US and EC case
Although the Commission's SO is not public, its press release makes clear that it has found evidence that Rambus used a so-called "patent ambush." A patent ambush is possible where several companies form a standard-setting organization ("SSO") to avoid costly research leading to incompatible technologies. If a company participating in the SSO fails to disclose the existence of a patent that is required to use the standard technology, then the agreed license fees for using the standard may not cover that patent. When employing the standard technology, industry members may be forced to pay inflated royalties to the holder of the undisclosed patent.
The standard at issue here concerns DRAM technology, which is necessary for the production of memory chips used in computer systems and other types of digital equipment such as cameras or PDAs. The Commission has found that Rambus engaged in deceptive conduct during the DRAM standard setting period by keeping secret certain patents, with the aim of later claiming inflated royalty fees for the use of those patents.
The Commission's findings echo earlier findings by the Federal Trade Commission ("FTC"). In 2002, the FTC issued a complaint alleging that Rambus participated in the Joint Electron Device Engineering Council (JEDEC), an SSO that "maintained a commitment to avoid, where possible, the incorporation of patented technologies into its published standards, or at a minimum to ensure that such technologies, if incorporated, will be available to be licensed on royalty-free or otherwise reasonable and non-discriminatory terms." The FTC complaint further alleged that Rambus participated in JEDEC's DRAM standard-setting activities for more than four years without disclosing to JEDEC or its members that it was actively working to develop, and possessed, a patent and several pending patent applications that involved specific technologies ultimately adopted in the standards.
In an opinion issued in July 2006, the FTC found that "Rambus engaged in exclusionary conduct that significantly contributed to its acquisition of monopoly power in four related markets" but left open the question of remedies. In a February 2007 order, the FTC imposed caps on the royalty rates that Rambus could collect on JEDEC-compliant products; prohibited Rambus from misrepresenting its patents or patent applications to any SSO; and required Rambus to abide by the requirements and policies of SSOs to make complete, accurate, and timely disclosures of its patents or patent applications.
The Commission, in its press release, expressly refers to the FTC's actions as "parallel proceedings" but observes that the FTC's actions only protect companies conducting business in the US. The Commission investigation could result in similar relief for companies exposed to Rambus' patent enforcement actions in Europe.
First European patent ambush case
The Rambus case is the Commission's first patent ambush case, although its conclusions derive from well-established case law on the application of Article 82 of the EC Treaty. That article prohibits the abuse of a dominant market position, and the Commission has serious weapons at its disposal for penalizing Article 82 violations. The Commission may impose a fine of up to 10% of worldwide group turnover, plus daily fines for every day of non-compliance with any behavioral orders. The remedies imposed on Microsoft show clearly that the Commission is not reluctant to use those weapons, and that case illustrates how behavioral remedies, such as having to disclose source code, can be far more onerous than a financial penalty.
The law relating to patent ambush is still far from clear in Europe. In fact, no relevant precedents exist at the European level, creating legal uncertainty in this increasingly important area. The Commission's decision in the Rambus case and any subsequent appeal judgments will provide long-awaited and welcome guidance on how to set up and run an SSO so as to minimize the risk of patent ambush.
Conclusion
Patent holders and patent users in the US and in Europe have reason to follow the European Rambus case closely. In today's globalized economy, most technology companies are active worldwide, and the Commission's actions will carry global implications. If the Commission concludes that Rambus has violated the law, its decision could provide useful guidance for companies participating in, or using standards set by, an SSO.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Francois Renard, an O'Melveny partner licensed to practice law in Brussels, and Anja Siebel, an O'Melveny associate licensed to practice law in England and Wales, have contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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